National and Kapodistrian UNIVERSITY OF ATHENS
Incorporating risk analysis into
telecom investment projects
Dr. Dimitris VAROUTAS
Lecturer
University of Athens
Dept of Informatics & Telecommunications
D.Varoutas@di.uoa.gr
National and Kapodistrian UNIVERSITY OF ATHENS
Agenda
UoA in modeling telecom investments
Risk analysis in telecom investments
n
n
n
The problem
The methodologies
The tools
Some examples
n
n
Broadband access networks
3G-WLAN business cases
Conclusions & Discussion
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National and Kapodistrian UNIVERSITY OF ATHENS
UoA Technoeconomic activities
Conduct techno- economic evaluations for
telecommunication investment projects like:
w Next generation mobile networks and services
w Fibre access evolution
w Broadcast convergence
Formulate pertinent recommendations to policymakers,
network operators and service providers regarding
communications investment strategies.
Demand modelling
Study the risk and externalities effects in communications
Promotion and dissemination of the results
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National and Kapodistrian UNIVERSITY OF ATHENS
Consolidation of results and
guidelines for deployment scenarios
Guidelines
Standards,
Research projects
and field trials
Other Sources
Common
conclusions
Network Studies
Common framework
Information gathering / exchange
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National and Kapodistrian UNIVERSITY OF ATHENS
Steps in technoeconomic modelling
Marketing
Strategy
Services
Network
Technology
Components
Cost
Prices
Revenues
Marker
Share
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk and uncertainty are the only
certain factors
Marketing
Strategy
RISK
Services
RISK
Network
Technology
Components
Cost
Prices
Revenues
Marker
Share
RISK
RISK
RISK
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in marketing strategy
n
n
n
n
Diffusion or choice based
models
Market studies or expert
reports
Cross technology models
Cross country models
Diffusion Rates
0,25
0,20
Rate
Lucrative segments of
markets/areas/services
Suitable models for the
evaluation of the
segments
0,15
0,10
0,05
0,00
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Years
Actual
Gompertz I
Gompertz II
Box-Cox
FLOG
TONIC
Linear Logistic
E.g. Can we evaluate and
forecast the number of
innovators and imitators?
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in evaluating services
Which are the
profitable applications
and services
n
Online or offline
services
Determinants of
telecom service
w Rate
1,2
y = 0,0396x + 0,7633
1
Hedonic index
n
Hedonic Price Index Evolution
0,8
0,6
0,4
0,2
0
98/97
99/98
00/99
01/00
02/01
Years
w Distance
w Mobility
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in choosing the network
technology
Can we take lessons
for existing
technologies
Need for risk analysis
in new technologies
n
n
xDSL
WLAN
Digital
Subscriber
Line
Satellite
Systems
Fibre
in the loop
Wireless
Cellular
Systems
Hybrid
Fibre
Coax
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in evaluating pricing concepts
Appropriate pricing
models
Evaluation of price
models in real or
simulated situations
Unified price indices
n
n
n
across technologies
across services
across countries
Need for new
approaches in
econometric models
n
n
n
n
Price elasticity
User behavior
Externalities
Cross technology
effects
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk analysis outputs
Selection of technologies
based on actual costs
Concentration
Non profitable cases
Calculation of “costs per
user” and “costs per
subscriber”
Optimum solution
Rest value calculations
Critical components
Renegotiation of
components’ purchase
costs
Profitable services
Detailed analysis of
services costs
Rules and guidelines for
viable cases
Market opportunities
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An example
Fixed BB telecommunication
investments
National and Kapodistrian UNIVERSITY OF ATHENS
The Fixed BB scenarios
Core network
- Active Optoelectronic
- WAN Interfaces
- VDSL interface
ATM
Central
Exchange (CE)
ATM
- Fibre cable
Copper cable
- Passive couplers
ATM STM4
GbE
Local
Exchange (LE)
OLT
OLT
ONU
Main cable
...
PON
Cabinet(Cab)
ONU
Distribution
cable
Subscriber
location
100BaseFx
Customers
< 750m
Customers
< 750m
...
NT
NT
NT
ATM
(P-t-MP) FTTC
ONT
ONT
ATM
(P-t-MP) FTTH/O
NT
Ethernet
(P-t-P) FTTH/O
NT
NT
Ethernet
(P-t-P) FTTC
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Financial results
Net Present Value (NPV)
Area
Dense Urban
Urban
Suburban
Fibre to the Cabinet
ATM
Ethernet
29,45 mill € 29,40 mill €
18,13 mill € 18,06 mill €
-34,42 mill € -38,21 mill €
Fiber to the Home/Office
ATM
Ethernet
18,31 mill €
7,47 mill €
-9,11 mill €
-22,30 mill €
-279,49 mill € -295,32 mill €
Internal Rate of Return (IRR)
FTTC
Area
Dense Urban
Urban
Suburban
ATM
66,8 %
30,8 %
no return
Ethernet
56,2 %
29,7 %
no return
FTTH/O
ATM
Ethernet
46,1 %
21,5 %
no return
no return
no return
no return
Pay back Period [years]
FTTC
Area
Dense Urban
Urban
Suburban
ATM
3,8
5,3
no return
Ethernet
4,3
5,7
no return
FTTH/O
ATM
Ethernet
5,5
7,5
no return
no return
no return
no return
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National and Kapodistrian UNIVERSITY OF ATHENS
CAPEX figures
10 Mill €
45 Mill €
Zoom in:
Cable_Infrastructure
Cable
Infrastructure
40 Mill €
9 Mill €
Duct Infrastructure
Duct_
BuildingInfra
Building
Infrastructure
35 Mill €
Cabinet Equipment
Cabinet_Equipment
LEX_Equipment
LEX
Equipment
25 Mill €
CEX_Equipment
CEX
Equipment
LEX Equipment
8 Mill €
CPE_Equipment
CPE
Equipment
30 Mill €
Cabinet Equipment
CEX Equipment
7 Mill €
6 Mill €
5 Mill €
20 Mill €
4 Mill €
15 Mill €
3 Mill €
10 Mill €
2 Mill €
5 Mill €
1 Mill €
0 Mill €
0 Mill €
Dense Urban
ATM
Dense Urban ATM
Urban
EoVDSL
Urban
EoVDSL
Suburban
ATM
Suburban
EoVDSL
Dense
Urban
ATM
Dense Urban ATM Urban
Suburban Suburban
EoVDSL
Urban
EoVDSL
ATM
EoVDSL
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National and Kapodistrian UNIVERSITY OF ATHENS
Financial risk in fixed BB investments
100
Probability of NPV < 0 [%]
90
80
70
60
[%]
50
40
30
20
10
0
FTTC– ATM,
FTTC
FTTC– ATM,
FTTC
FTTH/O
Dense Urban EoVDSL,
Urban
EoVDSL,
EoVDSL,
Dense Urban
Urban
Dense Urban
Scenarios
FTTH/O
EoVDSL,
Urban
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An example
3G and WLAN investments
National and Kapodistrian UNIVERSITY OF ATHENS
The idea for 3+/4G networks
Local Area
WLAN Datacom
Airport
Home
Hotel &
Conference
Roaming
Office
Train
station
Public
space
Wide area
Cellular Datacom
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Mobility/Deployment Area
Transmission rate - Mobility
Target Area of Service
Beyond IMT-2000
High Speed
/Nationwide
Moderate Speed
/Citywide
2G
Systems Beyond
IMT-2000
3G
(2007-2010?)
IMT-2000
(2001)
Walking
/Premises
Wireless LAN
(2002)
Millimeter-wave
LAN
Static
/Indoor
0.1
1
10
100
Transmission Bit Rate (Mbit/s)
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WLAN Roaming
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National and Kapodistrian UNIVERSITY OF ATHENS
ARPU Estimations
TONIC yearly ARPU estimations
900
800
700
BB Internet
Internet
500
SMS
400
BB streaming
300
video streaming
audio streaming
200
videoconf
100
video calls & gaming CS & PS
voice CS+PS
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
Euros
600
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National and Kapodistrian UNIVERSITY OF ATHENS
Sensitivity analysis
1.800
1.600
1.400
1.200
1.000
800
600
400
200
0
Usage
Total
Penetration
End Market
Share
Start Market
Share
OAM
UMTS BTS
Marketing
Multiplier
Terminal
Subsidy
WLAN Building
Begin
Churn
Low Value
183
253
453
748
1.037
1.033
971
964
948
953
High Value
1.714
1.643
1.444
1.147
860
864
926
932
961
943
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk factors
Risk in marketing parameters
n
n
n
Market size
Market share
Service determinants
Risk and uncertainty in network parameters
n
n
n
n
Technology costs
Technology changes
Cost components evolution
Area characteristics
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Some ideas on telecommunications
investments in developing countries
Demand forecasting
n
n
Effects of cross-country diffusion processes
Competition level
Technology selection
Critical mass effects
Communications or telecommunications
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National and Kapodistrian UNIVERSITY OF ATHENS
Conclusion
Risk analysis is a critical issue for telecom
investment projects
Need for specific problem statement,
methodology and tools development
Research is needed as well as
coordination among key players
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National and Kapodistrian UNIVERSITY OF ATHENS
Time for Questions & Answers
D.Varoutas@di.uoa.gr